Money Counts:
A Financial Literacy Series
Wage and Tax Fundamentals
January 21, 2015
5:30 – 6:30 p.m.
Mann Assembly Room, 103 Paterno Library
Dr. Daad A. Rizk
Dr. Cathy F. Bowen
MoneyCounts: A Financial
Literacy Series
128H Outreach Building
University Park, PA 16802
dar39@psu.edu
1-(814)-863-0214
Professor and Consumer Issues Specialist
Department of Agricultural Economics,
Sociology and Education
8B Ferguson Building
University Park, PA 16803
cbowen@psu.edu
1-814-863-7870
Learning Objectives
• Provide an overview of the federal taxing system
• Describe tax withholding and wage statements
• Review forms W4, W2
• Describe the completion of the Form 1040 using key documents.
Overview of the Federal Taxing System
• Pay as you earn or pay as you go system
• Progressive tax-the more you earn the higher your tax
bill (10% - 39.6% tax rates)
• Tax language—terms to know
Taxes
• Internal Revenue Service (IRS) – Collects federal taxes,
issues regulations, and enforces tax laws written by the
United States Congress
Taxes
• Taxes – Compulsory charges imposed on citizens by
local, state, and federal governments
• Used to provide public goods and services
– Largest amount of taxes a person pays is on his/her
income
2014 Federal Tax Rates-Single
If Taxable Income Is
Then the Gross Tax Payable Is:
Over
But not over
Amount
$0
$9,075
--------10% of taxable income----------
9,075
36,900
907.50
15%
9,075
36,900
89,350
5,081.25
25%
36,900
89,350
186,350
18,193.75
28%
89,350
186,350
405,100
45,353.75
33%
186,350
405,100
406,750
117,541.25
35%
405,100
406,750
-----------
118,118.75
39.6%
406,750
Plus
(percent)
Of the amount
over
2014 Federal Tax Rates-Married
If Taxable Income Is
Then the Gross Tax Payable Is:
Over
But not over
Amount
$0
$18,150
--------10% of taxable income----------
18,150
73,800
1,815.00
15%
18,150
73,800
148,850
10,162.50
25%
73,800
148,850
226,850
28,925.00
28%
148,850
226,850
405,100
50,765.00
33%
226,850
405,100
457,600
109,587.50
35%
405,100
457,600
-----------
127,962.50
39.6%
457,600
Plus
(percent)
Of the amount
over
Key Tax Terms
• Income
–
–
–
–
–
Earned
Unearned
Tax exempt interest
Taxable interest
Dividends (ordinary and qualified)
• Adjusted Gross Income (AGI)
–
–
–
–
–
Adjustments (subtract from income)
Educator expenses
Self-employed tax
Student loan interest
Tuition and fees
Key Tax Terms
• Tax
Itemize Deductions
– Standard deduction
– Exemptions
– Taxable Income
• Other Taxes
– Self-employment tax
• Payments
– Federal tax withheld
– Earned Income credit
– Premium tax credit
Credits
* Foreign Tax
* Child and Dependent Care
* Education
* Retirement Saver’s
W4 – Employee’s Withholding Allowance Certificate
• Employee completes the certificate and files with employer at the
beginning of employment (Human Resources) and after life events.
• Employer uses the information on the w-4 to determine the amount of tax
to withhold each pay period.
• Rules of Thumb:
The more allowances on w-4, the fewer taxes withheld from pay
The fewer allowances on w-4, the more taxes withheld from pay
• Action Item: Review form w-4 each year. Adjust withholdings as needed
so only the needed amount of tax is withheld.
irs.gov Withholding Calculator
• IRS Withholding Calculator
Wage and Tax Statement W-2
1099 and 1098
• 1099 Misc – Non-employee independent contractor
services, rental income, etc.
• 1099 INT – Interest income on investment accounts,
saving bank account, etc.
• 1098 – Mortgage Interest Statement, mortgage points,
mortgage insurance premiums
• 1098 T – Tuition Statement
• 1098 E – Student Loan Interest Statement
1099-Miscellaneous Income
1099-Interest Income
1099 Dividends & Distributions
1098 Mortgage Interest Statement
1098-T Tuition Statement
1098-E Student Loan Interest
Which statement best describes how you get taxes prepared?
I….
1. Use VITA-volunteer income tax assistance or a similar free
service
2. Prepare my own federal/state tax returns using a computer
program (i.e., Turbo tax )
3. Prepare my own federal/state tax returns by hand (paper
forms or printable pdfs from irs.gov)
4. Hire a professional to prepare my federal and state taxes each
year
Rule of Thumb
Use only Form 1040
• Changes are minimal from year to year.
• Used for most complicated returns.
• Decreases chance you will overlook a tax benefit.
• You learn the form
Completing a Tax Return
Think!
• Basic addition and subtraction problem!
•
•
•
•
•
•
•
Income (+)
Adjusted Gross Income (-)
Taxes and Credits (+ and -)
Other Taxes (+)
Payments (+)
Overpayment=refund
Underpayment=Amount you Owe
Standard Deduction -2014
Personal Exemption - 2014
• Personal Exemptions. The personal exemption amount
is $3,950 in 2014, up from $3,900 in 2013.
• Phase-outs for personal exemption amounts begin with
adjusted gross incomes (AGI) of $254,200 for individuals
and $305,050 for married couples filing jointly;
• The personal exemptions phase out completely at
$376,700 for individual taxpayers ($427,550 for married
couples filing jointly.)
Step 1—List Personal Information
Step 2—Add income
Step 3- Subtract Adjustments
Step 4-Subtract deductions, exemptions. Figure tax
on taxable income and subtract credits.
Step 5-Add/Total other taxes
NEW--ACA
Check this box if you had non
Marketplace health insurance
Step 6- Add payments made and refundable tax credits
NEW--ACA
Step 7- Finishing Details
Health Insurance—New in 2014
NEW--ACA
Check this box if you had non
Marketplace health insurance
Step 6- Add payments made and refundable tax credits
NEW--ACA
Health Insurance—New in 2014
• For taxpayers who purchased health insurance from The
Marketplace (Healthcare.gov)
• Look for Form 1095-A in the mail. Use it to help you fill
out Form 8962 on your federal tax return.
• No Form 1095-A if health coverage was from Medicaid,
Medicare, CHIP-Children’s Health Insurance Program or
received an exemption.
Schedule A
Schedule A
Schedule A-continued
Schedule A (itemized deductions)
• Allowable deductions for taxpayers
– Medical and dental expenses
–
–
–
–
–
–
Taxes you paid
Interest you paid
Gifts to charity
Casualty and theft losses
Job expenses
Other miscellaneous deductions
Tax Tips for College Students
1. If you have earned income, file even if not required to get
taxes withheld back and/or Earned Income Tax Credit
2. Create a tax folder at the beginning of each year. Store tax
related documents in the folder
3. Practice doing your current return using a paper form
4. Understand your family situation. Can your parents claim
you on their return? Confirm this before filing
5. Generally, state taxes are paid in the state earned
6. Use the Form 1040 exclusively
Tax Tips for College Students
7. Understand the education credits that apply to you
8. Self-employed or have taxable fellowships—send in
estimated quarterly payments (see Form 1040-ES)
9. Avoid underpayment penalty. Pay 90% of current filing year
tax bill, 100% of tax shown on prior year bill. Less than
$1000 owed = no penalty
10. See IRS apps and topical videos
11. Lesson—Understanding Taxes
Additional Resources
For help completing the 2014 tax return @ PSU-University Park.
PSUVITA.org or call 814-863-4147, Mon.-Fri. (effective 1/26/2015).
VITA is available for U.S. citizens or resident aliens with a household income of
$53,000 for 2014.
IRS Assistance. www.irs.gov
Search for VITA sites nationwide by zip code
Look for “Where’s My Refund” web page
Refund Hotline—1-800-829-1954
Tax-Help 1-800-829-1040
PA Dept. of Revenue. www.revenue.pa.gov
Online Customer Service Center: https://revenue-pa.custhelp.com/
Thank you for participating!
Questions and Comments?
Dr. Cathy F. Bowen
Professor and Consumer Issues Specialist
Department of Agricultural Economics,
Sociology and Education
8B Ferguson Building
University Park, PA 16803
cbowen@psu.edu
814-863-7870 (o)
Dr. Daad A. Rizk
MoneyCounts: A Financial
Literacy Series
128H Outreach Building
University Park, PA 16802
dar39@psu.edu
1-(814)-863-0214